Allergan's best hope: Find a white knight

Pershing Square Capital Management CEO Bill Ackman speaks at the New York Film Festival premiere of Sony Pictures Classics' &#8220;Inside Job&#8221; at Alice Tully Hall in New York City in October 2010. Ackman and Valeant Pharmaceuticals announced their intention Tuesday to buy Irvine-based drugmaker Allergan in a $47.5 billion deal. FILE PHOTO: STEPHEN LOVEKIN, GETTY IMAGES

The “poison pill” defense strategy adopted by Allergan Inc. will buy the Irvine company time by putting the brakes on a hostile takeover bid, analysts said Wednesday.

But it may be too late for Allergan to avoid being acquired now that shareholders have seen how much the buyout bid has lifted the company’s stock price.

Allergan moved late Tuesday to thwart the bid by Canadian rival Valeant Pharmaceuticals and activist shareholder William Ackman with a stockholder rights plan that would dilute the voting power of the bidders should the takeover partners attempt to increase their holdings of Allergan stock.

Earlier Tuesday, Valeant and Ackman announced their intention to acquire the Irvine-based drugmaker in a $47.5 billion deal that would be roughly one-third cash and two-thirds stock.

As a prelude to their bid, Ackman and Valeant had established a fund – under the auspices of Ackman’s Pershing Square Capital Management – that quietly acquired a 9.7 percent stake in Allergan between Feb. 25 and April 21 to become the company’s biggest shareholder.

Allergan, which makes Botox, the $2 billion-a-year anti-aging blockbuster, said that if the stake of any investor surpasses 10 percent, all other shareholders will have the right to purchase company stock at a deeply discounted price. In such a scenario, the plan would allow shareholders of record as of May 8 to purchase one discounted share for each share they already own, thus potentiallydoubling their holdings.

Ackman and Valeant – or any other investor not approved by Allergan who exceeded the 10 percent threshold – would be excluded from the stock-buying program. The move is a setback for their takeover attempt, because it makes it almost impossible for them to increase their percentage stake in Allergan by going directly to shareholders.

But analysts who follow the pharmaceutical industry said Allergan probably can’t block a takeover altogether. Allergan’s stock price has soared 42 percent since April 10, when Ackman’s Pershing Square fund began what he has characterized as an accelerated accumulation of the company’s shares.

Allergan’s maneuver “gives them some time to consider other options. My sense is that they are going to try to find a white knight here,” said David Amsellem, an equities analyst withi Piper Jaffray. “Because of the compelling nature of the offer to shareholders, Allergan has fairly limited options. It essentially comes down to Valeant or a white knight.”

Amsellem and other analysts say the $2.7 billion in spending cuts proposed by Valeant and Ackman mean that it is basically trying to dismantle Allergan as it is currently constituted.

“I think that’s bad for the industry,” Amsellem said. “So what Allergan is tasked with here is to find a friendly partner that can preserve as much of the infrastructure as possible.” He said Allergan’s management probably has “weeks” to find that alternative buyer.

Ackman, speaking Wednesday on Bloomberg TV, said the pharmaceutical industry “is one of the few industries that has not been forced to operate with the same economic discipline as other industries.” He said Valeant, under the leadership of CEO Michael Pearson, has been “leading the charge in making this a much more shareholder-oriented industry – a much more profitable industry.”

Allergan seemed to suggest that it may be open to being acquired by a different bidder. The new stockholder rights plan, it said, is “not intended to prevent an acquisition of the company on terms that the board considers favorable to, and in the best interests of, all stockholders. Rather, the plan aims to provide the board with adequate time to fully assess any proposal.”

A spokeswoman for Valeant said the company had no comment on Allergan’s move.

In a letter to Allergan CEO David Pyott, made public early Tuesday, Pearson said he and Ackman had taken their proposal directly to the shareholders because Allergan’s management had “not been receptive to our overtures for over 18 months and has made it clear both privately and publicly that it is not interested in a deal with us.”

The proposed merger, Pearson said, was “a strategically compelling and enormously value-creating opportunity.” He urged Allergan to “enter into discussions with us promptly so that we can consummate this mutually beneficial transaction in a timely manner.”

The value of Valeant’s offer fluctuates with the price of that company’s stock, which closed trading Wednesday at $133.23, down $2.18, or 1.6 percent. Allergan shares rose $2, or 1.2 percent, to $166.65.

User Agreement

Keep it civil and stay on topic. No profanity, vulgarity, racial
slurs or personal attacks. People who harass others or joke about
tragedies will be blocked. By posting your comment, you agree to
allow Orange County Register Communications, Inc. the right to
republish your name and comment in additional Register publications
without any notification or payment.